Analyst Note| Kevin Brown |
While we expected a significant drop in no-moat Pebblebrook's second-quarter results, the reported decline in almost all metrics was more severe than we had anticipated. Still, the short-term results don't impact our medium- and long-term outlook for the company's fundamentals, so we don't anticipate making any material changes to our $23.50 fair value estimate. While Pebblebrook managed to keep rate growth relatively stable in the second quarter with only a 0.9% year-over-year drop in average daily rate, occupancy fell to 3.3% from 86.9% in the second quarter of 2019. As a result, revenue per available room fell 96.2% in the second quarter. The company managed to reduce variable expenses by a similar percentage, but fixed expenses like property taxes caused same-store expenses to only decline 75.7% in the quarter. Therefore, same-store EBITDA was negative $40.8 million in the quarter compared with positive $146.9 million EBITDA last year. With other fixed corporate expenses like interest expense, adjusted funds from operations saw a $76.6 million loss or $0.58 per common share, which is worse than our estimate of a $0.34 loss in the second quarter.